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Union Budget 2025-26

No Tax on Income Below ₹12 Lakhs: Explained

The Union Budget 2025, announced on February 1, introduced significant changes to the new tax regime that will affect how you pay taxes. New tax slabs have been established, and the tax rebate under Section 87A has been increased from ₹20,000 to ₹60,000. Here’s a complete breakdown and practical examples for different income brackets that will help you understand and calculate your tax obligation based on your taxable income with confidence.

Latest Income Tax Slabs and Rates (FY 2025–2026)

The following income tax slabs and rates apply to individuals, Hindu Undivided Families (HUF), Associations of Persons (AOP), and Bodies of Individuals (BOI) for the financial year 2025–2026. This breakdown will assist you in understanding your tax obligations based on your annual income.

Annual Income (₹)	Tax Rate (%)
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5%
₹8,00,001 – ₹12,00,000	10%
₹12,00,001 – ₹16,00,000	15%
₹16,00,001 – ₹20,00,000	20%
₹20,00,001 – ₹24,00,000	25%
₹24,00,000 and above	30%

Understanding Your Tax: Examples and Calculations

Let’s look at some example scenarios to understand the different parts of your tax slab and how to calculate how much you owe.

Scenario A: Tax Calculation for an Annual Salary of ₹12,75,000

Let’s consider a taxpayer with a taxable income of ₹12,75,000. Under the changes made to the new tax regime introduced in the Union Budget 2025, we will break down the tax calculation step by step.

Step 1: Apply Standard Deduction

· Standard Tax Deduction: ₹75,000

· Taxable Income: ₹12,75,000 - ₹75,000 = ₹12,00,000

Step 2: Apply Tax Slabs

Applicable Income Slab (₹)	Tax Rate (%)	Tax Amount (₹)
Up to ₹4,00,000	Nil	₹ 0
₹4,00,001 – ₹8,00,000	5%	₹ 20,000
₹8,00,001 – ₹12,00,000	10%	₹ 40,000
Total Tax Payable Before Cess	—	₹ 60,000

Step 3: Apply Rebate Under Section 87A

· Rebate Amount: ₹60,000

· Final Tax Payable: Total Tax Payable Before Cess – Rebate Amount

· Final Tax Payable: ₹60,000 - ₹60,000

· Final Tax Payable: ₹0

Therefore, no tax is payable on an annual salary of ₹12,75,000 under the new tax regime, thanks to the availability of a standard deduction of ₹75,000 and the applicable rebate.

Note: Health and Education Cess applies only when tax is payable. In this case, since the tax payable is NIL due to the rebate under Section 87A, the Health and Education Cess is not applicable.

Scenario B: Tax Calculation for an Annual Salary of ₹20,00,000

Let’s consider a taxpayer with a taxable income of ₹20,00,000. We will explain the tax calculation in detail based on the changes to the new tax regime introduced in the Union Budget 2025, so you can see how this income level affects taxes.

Step 1: Apply Standard Deduction

· Standard Tax Deduction: ₹75,000

· Taxable Income: ₹20,00,000 - ₹75,000 = ₹19,25,000

Step 2: Applicable Tax Slabs

Applicable Income Slab (₹)	Tax Rate (%)	Tax Amount (₹)
Up to ₹4,00,000	Nil	₹ 0
₹4,00,001 – ₹8,00,000	5%	₹ 20,000
₹8,00,001 – ₹12,00,000	10%	₹ 40,000
₹12,00,001 – ₹16,00,000	15%	₹ 60,000
₹16,00,001 – ₹19,25,000	20%	₹ 65,000
Total Tax Before Cess	—	₹ 1,85,000

Step 3: Apply Health & Education Cess (4%)

· Cess Amount: ₹1,85,000 × 4% = ₹7,400

· Total Tax Payable: Total Tax Before Cess + Cess Amount

· Total Tax Payable: ₹1,85,000 + ₹7,400

· Total Tax Payable: ₹1,92,400

For an annual income of ₹20,00,000, the total tax payable is ₹1,92,400.

Note: In the above case, the rebate under Section 87A is not applicable, as it is only available for incomes of up to ₹12 Lakhs under the new tax regime.

Scenario C: Tax Calculation for an Annual Salary of ₹25,00,000

Consider a taxpayer with a taxable income of ₹25,00,000 under the new tax regime introduced in the Union Budget 2025. Here’s a concise breakdown of how the tax is calculated using the applicable slabs.

Step 1: Apply Standard Deduction

· Standard Tax Deduction: ₹75,000

· Taxable Income: ₹25,00,000 - ₹75,000 = ₹24,25,000

Step 2: Applicable Tax Slabs

Income Slab (₹)	Tax Rate (%)	Tax Amount (₹)
Up to ₹4,00,000	Nil	₹ 0
₹4,00,001 – ₹8,00,000	5%	₹20,000
₹8,00,001 – ₹12,00,000	10%	₹40,000
₹12,00,001 – ₹16,00,000	15%	₹60,000
₹16,00,001 – ₹20,00,000	20%	₹80,000
₹20,00,001 – ₹24,00,000	25%	₹1,00,000
₹24,00,000 – ₹24,25,000	30%	₹7,500
Total Tax Before Cess	—	₹3,07,500

Step 3: Apply Health & Education Cess (4%)

· Cess Amount: ₹3,07,500 × 4% = ₹12,300

· Total Tax Payable: Total Tax Before Cess + Cess Amount

· Total Tax Payable: ₹3,07,500 + ₹12,300 = ₹3,19,800

· Total Tax Payable: ₹3,19,800

For an annual income of ₹25,00,000, the total tax payable is ₹3,19,800.

Note: In the above case, the rebate under Section 87A is not applicable, as it is only available for incomes up to ₹12 Lakhs under the new tax regime.

Key Takeaways from the Union Budget 2025

Increased Tax Deduction Limit

The tax deduction limit on interest income for senior citizens has been doubled from ₹50,000 to ₹1 Lakh. This change allows retirees to retain more of their earnings from savings schemes like fixed deposits, effective from April 1, 2025.

Increased Tax Rebate Limit

The tax rebate limit has been raised to ₹12 Lakhs, providing significant relief to middle-class taxpayers and aiming to boost consumption.

Revised Tax Slabs

The new tax slabs have been adjusted, with the highest tax rate of 30% now applicable only on incomes above ₹24 Lakhs.

New Income Tax Bill

A new income tax bill will be introduced to simplify tax laws, aiming for greater clarity and reduced litigation for taxpayers.

Higher TDS Limit on Rent

The annual limit for Tax Deducted at Source (TDS) on rent has been increased from ₹2.40 Lakhs to ₹6 Lakhs, easing the tax burden for both tenants and landlords.

February 1, 2025: Budget Live Updates

12:12 PM:

The tax slabs and rates will be revised across the board to benefit all taxpayers.
The new structure will significantly reduce taxes for the middle class.
A 'Nil tax' slab will be introduced up to ₹12 Lakhs ( ₹12.75 Lakhs for salaried taxpayers with a standard deduction of ₹75,000).

12:10 PM:

No income tax up to ₹12 Lakhs: Zero tax slab till ₹12 Lakh salary under New Tax Regime

12:00 PM:

Direct Tax – Part A: The new Income Tax Bill will be designed to be simple and easy to understand.
Personal Income Tax: The focus will be on improving the middle class.
TDS will be reduced, and the threshold amount will be revised.
The interest for senior citizens will be increased from ₹50,000 to ₹1,00,000.
The annual TDS on rent limit will be raised from ₹2.4 Lakhs to ₹6 Lakhs.
TDS on education loans will be removed.
Both TDS and TCS will apply on the sale of goods.
A provision for higher TDS deduction will be made for cases without a PAN.
The delay in filing for TCS provision will be decriminalised.

11:55 AM:

Pharma companies will be exempt, provided the medicines are offered free of cost. 36 lifesaving drugs and medicines would be added to the list of medicines fully exempted from Basic Customs Duty.
Additionally, 37 more medicines and 13 new patient assistance programmes would be fully exempted from Basic Customs Duty.

11:53 AM:

The fiscal deficit for FY25 is projected at 4.8%, while the estimated fiscal deficit for FY26 is 4.4%.

11:52 AM:

The Jan Vishwas Bill 2.0 will be introduced to decriminalise over 100 provisions. An investment-friendly index of states will also be launched in 2025.

11:50 AM:

Government will announce a new Income Tax Bill next week.
FDI limit for insurance sector to be increased to 100%.

11:49 AM:

Bharat Trade will be established as an international platform for unified trade.
A Unified Logistics Platform will be set up to streamline logistics processes.
Efforts will be made to develop the domestic manufacturing economy.

11:48 AM:

A Geo-Spatial Mission and infrastructure development will be undertaken using PM Gati Shakti, focusing on modernisation and expansion.
A National Repository will be set up to facilitate knowledge sharing.
An Export Promotion Mission will be launched to target external markets, incorporating MSME and finance sectors, with easier access and non-tariff measures.

11:47 AM:

Medical tourism will be promoted through partnerships with the private sector, with easier visa access.
An allocation of ₹20,000 Crores will be made for the development of next-gen startups.
10,000 fellowships will be provided for tech research in IITs and IICs.

11:45 AM:

Public-Private Partnerships (PPPs) and project planning will be furthered, with private sectors gaining access to maps.
Top 50 tourist destinations will be developed, with hotels included in the initiative.
Mudra loans will be made available for home stays.
Hotel management employment opportunities will be promoted.
Performance-linked incentives will be introduced to drive growth.
Visa-free access will be granted for select tourist groups.

11:42 AM:

The government will launch a modified UDAN scheme to connect 120 destinations, aiming to accommodate 4 crore additional passengers over the next 10 years.
Affordable and mid-income housing will be provided with 40,000 units in 2025, allowing individuals to pay rent for their current homes while moving into new apartments.

11:41 AM:

The Maritime Development Fund will have a corpus of ₹25,000 Crores, aimed at distribution and setting up competition within the maritime sector.

11:40 AM:

Ship building to be enhanced to promote economy. Large ships to be included.

11:38 AM:

A three-year pipeline of projects will be developed through public, private, and partner infrastructure, with ₹1.5 Lakh Crores allocated for interest-free loans for capital expenditure.
15 crore households will receive tap water connections, with the initiative extended until 2028 and an enhanced total outlay.
Electricity distribution reforms will be implemented for intra-state electricity systems.
The Nuclear Energy Mission aims to generate 100 GW of energy by 2047.
The Atomic Energy Act will be addressed.
A small modular reactor project worth ₹20,000 crore will be set up and operational by 2033.

11:35 AM:

10,000 additional seats in medical colleges and 75,000 seats in the next 5 years.

11:34 AM:

Global skilling partnerships to position India as a major player in global manufacturing.
Infrastructure will be expanded in IITs established after 2015, accommodating an additional 6,500 students across five IITs.

Furthermore, a Centre of Excellence for AI in Education will be set up with an allocation of ₹500 Crores.
A Centre of Excellence in AI for Education has been announced, joining the three previously announced centres for agriculture and health. This new centre will receive an allocation of ₹500 crore.

11:32 AM:

Broadband will be provided to all government secondary schools.
The Bhartiya Bhasha Pustak Scheme will focus on making Indian language books available for schools and higher education.
A National Centre of Excellence will be established, with 5 sectors announced to boost 'Make for India' and 'Make for the World' initiatives.

11:30 AM:

The Saksham Anganwadi and Poshan 2.0 programs will offer essential nutritional support to 8 crore children, 1 crore mothers, and 20 lakh adolescent girls.

11:26 AM:

Support will be provided for food processing, with the establishment of the National Institution of Food Technology and Entrepreneurial Support in Bihar, benefiting the entire eastern region.
Efforts will be made to add value for farmers and create skill development opportunities for the youth.

The National Manufacturing Mission will be launched to further boost the "Make in India" initiative.

11:24 AM:

The government will implement a policy aimed at improving the quality and production of leather and footwear, which is expected to benefit 22 lakh people.
India is set to become a global hub for toys, with a manufacturing ecosystem for toys being established.

11: 23 AM:

A new program has been introduced to provide term loans with a five-year duration, aimed at benefiting 5 lakh women from SC/ST communities.

11:20 AM:

Increased financial support for Micro and Small Enterprises to ensure better access to credit.
Loan coverage doubled from ₹10 Crores to ₹20 Crores, with a 1% processing fee for eligible startups.

Customised Credit Cards for MSMEs to be presented.

11:17 AM:

India Post to be transformed into a large logistical organisation.
Over 1 Crore MSMEs contributing 38% of total production in India.
MSME export contribution responsible for 45% of total exports, showcasing their crucial role in the economy.
Focus on modernisation and digital adoption to enhance productivity and competitiveness.

11:15 AM:

The government introduces the 5F vision to enhance the textile sector, ensuring sustainable growth.
Measures to boost agricultural earnings and improve the financial well-being of cotton farmers.
Initiatives to maintain a consistent raw material supply, supporting weavers and textile industries.
7-7.5 Crore farmers to benefit from short-term loans through Textile Credit Cards, improving access to financial resources.

The government plans to increase urea availability by 12.7 Lakh Metric Tons in Assam, supporting agricultural productivity.

11:11 AM:

Next 5 years present a unique opportunity to achieve Sabka Vikas, fostering balanced growth across all regions.

11:09 AM:

A holistic initiative to be planned for fruits and vegetables to meet the growing demand and rising consumption trends.
Farmers cultivating makhana will now be eligible for benefits under all government schemes.
Strengthen research, seeds, high-yield farming, to cover over 100 seed varieties
Seafood export valued at 60,000 Crores

11:06 AM:

Focus 1 of Budget- Agriculture Sector.
Dhan Dhyana Yojana program will cover 100 districts with low productivity, promote crop diversification, improve irrigation areas.
Ample opportunities to be generated in rural areas for migration.
Focus on young farmers and landless families.

11:04 AM:

Budget focus on 6 main domains- Taxation, Power Sector, Urban Development, Mining, Regulatory Reforms Agriculture and Financial Sector. In this Budget, the proposed development measures span 10 broad areas, focussing on the poor, youth, farmers and women.

Expectations from the Union Budget 2025

Finance Minister Nirmala Sitharaman will deliver the Budget speech in the Lok Sabha at 11 a.m. on February 1, 2025, detailing budgetary allocations and revenue projections for the financial year 2025-26. It may include announcements on innovative measures to boost infrastructure, agriculture, MSMEs and other critical sectors. Some key expectations from this budget are:

1. Standard Deduction: The Standard Deduction under the Old Tax Regime is ₹50,000 per annum. It is expected that this goes up to ₹75,000 per annum in the New Tax Regime.

2. Income Tax Slab: It is expected that the basic exemption limit may increase to ₹5,00,000 from the current amount of ₹3,00,000 and a new tax rate of 25% may be introduced.

3. Section 80 C: The current limit of Section 80 C of the IT Act (1961) is ₹1,50,000. This is expected to change to ₹2,00,000.

4. Higher Deduction Limit on Home Loan Interest: Deduction available u/s 24(b) may increase from ₹2,00,000 to ₹3,00,000.

5. Section 80D: Deductions u/s 80D might go up from current limits. It may also be extended to new tax regime.

6. Concession on Corporate Taxes for new domestic manufacturing companies: The concessional rate of 15% may be extended to companies beginning manufacturing from April 1, 2024. Also, to be provided to Global Capability Centres (GCCs).